China’s optical suppliers extend sell-off as fears of slower AI growth trump upbeat earnings

Shares of major Chinese optical communications suppliers experienced a two-day sell-off on Friday, but shares recovered somewhat despite strong third-quarter earnings driven by the booming global artificial intelligence infrastructure. During morning trading in Shenzhen, Eoptolink Technology plunged as much as 15%, Suzhou TFC Communication fell 10.3%, and industry leader Zhongji Innolight dropped over 7%.

However, these losses were pared back by midday. The sell-off followed steep declines on Thursday, with TFC dropping 19.8%, Eoptolink tumbling 11.1%, and Innolight falling 8.5%. Innolight and Eoptolink manufacture optical transceivers, key hardware for transmitting data across fiber networks in AI data centers. TFC produces optical components used in communications equipment.

The market drop occurred even as the firms reported solid earnings growth. Innolight reported a 173.7% surge in third-quarter net profit to 8.59 billion yuan (US$1.29 billion), driven by AI infrastructure investment and high-end optical module sales. Eoptolink reported a 61.2% year-on-year increase to 3.84 billion yuan in quarterly net profit, while TFC's net profit rose 55.3% to 879.2 million yuan on a 31.5% revenue increase.

Despite these strong results, investors expressed concerns as sequential momentum showed signs of cooling. Eoptolink's nine-month operating cash flow dropped 68.4% to 1.46 billion yuan, and TFC's revenue missed market expectations by 34%. However, analysts maintained that downstream demand remained robust, with companies reassuring investors of full order books and demand guidance into 2028.